eBay’s core business is a platform business model that makes money from transaction fees through its marketplaces. In short, eBay primarily makes money by charging fees on successfully closed transactions. For instance, in 2022, on a $73.9 billion worth of gross merchandise value sold on eBay, the company generated $9.79 billion in revenues at a 13.25% take rate (fee).
|Business Model Element||Analysis||Implications||Examples|
|Value Proposition||eBay’s value proposition centers on providing a global online marketplace where individuals and businesses can buy and sell a wide range of products and services. It offers a platform for convenient and diverse shopping, selling opportunities, and access to a global customer base.||Offers a convenient platform for online buying and selling. Facilitates access to a vast product inventory. Attracts both individual consumers and businesses. Enables international commerce and trade.||– Individuals can sell used items, collectibles, or crafts on eBay. – Businesses can reach a wide audience by listing new products and used inventory on eBay. – Global customers can access a wide range of products from different sellers.|
|Customer Segments||eBay serves a diverse customer base, including individual consumers, collectors, hobbyists, small and medium-sized businesses, and large enterprises. It caters to buyers and sellers in various product categories, from electronics to fashion.||Addresses the needs of a broad range of consumers and businesses. Offers specialized marketplaces for collectors and enthusiasts. Attracts sellers looking for a platform to reach a global audience. Fosters a community of buyers and sellers.||– Individual consumers browse eBay for unique items, deals, and collectibles. – Small businesses use eBay as a sales channel to reach a larger audience. – Collectors and hobbyists explore specialized eBay marketplaces like eBay Motors and eBay Fashion.|
|Distribution Strategy||eBay primarily operates through its online marketplace accessible via desktop and mobile devices. It encourages sellers to list products, and buyers can browse and purchase items online. eBay also offers a mobile app for convenient shopping on smartphones and tablets.||Ensures widespread accessibility through online platforms. Facilitates user-friendly listing and shopping experiences. Encourages mobile shopping through a dedicated app.||– Buyers can access eBay’s marketplace via desktop or mobile web browsers. – eBay’s mobile app allows users to browse, bid, and make purchases on their smartphones. – Sellers list products for sale using eBay’s online platform.|
|Revenue Streams||eBay generates revenue primarily through transaction fees from sellers based on the sale price of items. It also earns revenue from advertising and listing enhancement fees for sellers, as well as subscription fees for sellers who require additional tools and features.||Relies on a transaction-based revenue model tied to successful sales. Earns income from seller advertising and enhanced listings. Offers premium tools and features through subscription plans. Attracts businesses seeking a cost-effective sales channel.||– eBay charges sellers a final value fee based on the sale price of items sold successfully. – Sellers can pay for enhanced listings to boost visibility. – eBay offers subscription plans, such as eBay Stores, with various features for businesses.|
|Marketing Strategy||eBay’s marketing strategy involves online advertising, email marketing, promotions, and partnerships with brands and influencers. It highlights its wide product selection, competitive pricing, and user-friendly platform to attract buyers and sellers.||Utilizes digital marketing channels for user acquisition and retention. Partners with brands and influencers for brand recognition. Promotes competitive pricing and product diversity. Engages with customers through email campaigns and promotions.||– eBay runs online ads to attract potential buyers and sellers. – Collaborates with influencers and celebrities to endorse products and generate buzz. – Sends personalized emails to users with product recommendations and promotions.|
|Organization Structure||eBay operates as a global corporation with multiple offices and subsidiaries worldwide. It has a decentralized organizational structure, with specialized teams for functions such as product development, marketing, customer support, and business operations.||Operates with a decentralized structure to focus on specialized functions. Employs a global workforce to cater to diverse markets. Emphasizes innovation in product development and customer engagement.||– eBay’s product development teams work on enhancing the user experience and platform features. – Customer support teams assist users with inquiries, disputes, and account management. – Marketing teams create campaigns and promotions to attract and retain users.|
|Competitive Advantage||eBay’s competitive advantage lies in its vast and diverse online marketplace, global reach, user-friendly platform, and strong brand recognition. It also benefits from a loyal community of buyers and sellers and a focus on innovation in e-commerce technology.||Offers a wide range of products, attracting diverse buyers and sellers. Leverages a global network for international trade. Provides a user-friendly experience for convenient shopping. Maintains a strong presence and brand reputation in the e-commerce industry.||– eBay’s diverse marketplace attracts buyers seeking a variety of products. – Sellers benefit from a global customer base and a user-friendly listing process. – Continuous innovation keeps eBay competitive in the evolving e-commerce landscape.|
eBay origin story
At the end of 2021, eBay had 147 million active buyers and 17 million sellers, which drove over $87 billion in Global Merchandise Volume (the volume of successful transactions that happened on the platform).
eBay Inc. was formed as a sole proprietorship in September 1995 by Pierre Omidyar.
Before that, on Labor Day of 1995, eBay was called Electronic Bay, then Auction Web eBay, and it had no guarantees, no fees, or any mechanism to moderate disputes on the platform, nor payments platforms integrate (eBay would, later on, purchase PayPal, that would be then spun-off in 2015).
As the story goes, cheques would start to pile up so much on Pierre Omidyar’s desk that he had to move those to a business account finally and scale what would become one of the most valuable internet companies, which would IPO by September 1998 (about three years after its launch).
Back in 1998, that is how the company would get described in its financial prospectus:
eBay is the world’s largest and most popular person-to-person tradingcommunity on the Internet. eBay pioneered online person-to-person trading by developing a Web-based community in which buyers and sellers are brought together in an efficient and entertaining auction format to buy and sell personal items such as antiques, coins, collectibles, computers, memorabilia,stamps and toys.
eBay Financial Prospectus of 1998
By 1998 eBay was growing at a staggering rate.
eBay business overview
eBay Inc. is a global marketplace platform, which today primarily consists of transaction revenues and marketing revenues:
- The core Marketplace platform includes the online marketplace, like ebay.com, and its mobile apps.
- Other services offered on top of its platforms: those are services meant to support the activity of third-party sellers on the platform.
What’s eBay’s unique business advantage?
We are fiercely loyal in protecting eBay’s unique advantage as a true marketplace in service of small independent businesses, consumer sellers, and buyers, and working to dramatically simplify the buyer and seller experience.
As the 2018 Shareholders’ Letter mentioned, eBay highlights its crucial strength of empowering independent sellers and businesses.
That is a crucial point to emphasize, as it enables us also to understand why eBay is at its core platform business model, and how it is different from other companies like Amazon.
What are the core value propositions of eBay?
As a platform business model eBay has two core players:
- And sellers
And to be valuable to sellers, it has to attract a broad range of buyers willing to buy any object on the platform.
The company is focusing in the coming years toward:
- Evolving to a managed marketplace.
- Building a foundational product catalog.
- Managing the end-to-end payment process.
- Offering great selection and value.
eBay value propositions for buyers
For buyers, eBay offers:
- Expansive inventory at a usually good value.
- Multiple delivery options.
- eBay’s 110% Best Price Guarantee (in the US for certain categories of products).
- Offerings below $10.
- Money-Back Guarantee and eBay Authenticate (a mechanism checking the authenticity of certain categories of products).
eBay value propositions for sellers
For sellers, eBay offers:
- The choice to list products and services through fixed-price listings or an auction-style format.
- Ability to list items that are newly refurbished, used, and rare.
- Promoted Listings.
- eBay’s Top-Rated Seller program.
- Insights on optimal listing and pricing through the Seller Hub portal.
How is the eBay business model different from Amazon? A platform business model at its core
Unlike other digital commerce businesses, we don’t compete with our sellers and we refuse to compromise the shopping experience to push “house brands” and irrelevant posts. Millions of small businesses and consumers sell only on eBay. I believe it’s because of our purpose and policies — this matters to customers. We fundamentally object to unnaturally bundling services to overcome barriers to competition. At eBay, we empower third party sellers to thrive, which actually serves consumers seeking value and selection. We are a benchmark on this. We always have been.
In its 2018 Shareholders’ Letter, eBay emphasizes the fact that the platform doesn’t compete against its third-party sellers, as it happens instead on a platform like Amazon, which, while enabling third-party sellers to host their products on top of Amazon e-commerce, it still also features its own branded products.
This is a key difference between eBay and Amazon.
In addition, where Amazon takes the money from transactions, then pays a fee to third-party sellers. eBay, instead, primarily takes a fee on a successful transaction.
In short, Amazon’s key strength is managing the cash generated through the platform.
EBay’s primary strength is its ability to connect buyers and sellers on various items not necessarily available elsewhere.
How does eBay make money?
eBay makes money in three ways:
- Primarily through fees collected on successfully closed sales on eBay.
- And other seller services are offered on top of its marketplaces.
eBay made over $9 billion in transaction revenues from marketplace fees in 2021. At the same time, it made around $650 million in marketing services in the same year.
What are the key metrics to understand eBay’s business model?
Each company’s business model has its logic, and as such, it measures its success through a set of metrics.
For eBay, those are:
- Gross merchandise volume.
- And transaction take rate.
Gross merchandise volume
Gross Merchandise Volume (“GMV”) is defined as the volume of successfully closed transactions between users on eBay Marketplace and StubHub platforms.
This is a useful metric to understand the volume of transactions happening on the platform.
In 2021, the GMV was over $87 billion.
Transaction take rate
The transaction take rate is given by the Marketplace net transaction revenues divided by Marketplace GMV.
For instance, the transaction take rate in the eBay marketplace was around 11.9% in 2021.
The ability of the platform to increase its transaction rate over time while keeping its buyers and sellers community thriving is a signal of the platform’s strength.
It means the platform has become more valuable for both sides of the marketplace.
Thus, monitoring the increased take rate, over time, together with the growing community of buyers and sellers, is a crucial way to understand whether eBay’s marketplace becomes more or less valuable.
How does eBay primarily spend money to make money?
To make money, companies must spend money.
Depending on the business model you might also be running, the essential expenses to make the bottom line work out might change.
In eBay, those key expenses can be summarized as customer support, site operations, and payment processing, which amounted to over $2.3 billion, or over 22% of its total revenues in 2018.
eBay Annual Report 2019
Other key expenses are related to sales and marketing (32% of total revenues in 2018), primarily consisting of advertising and marketing program costs (both online and offline), employee compensation, user coupons and rewards, contractor costs, facilities costs, and depreciation on equipment.
Other key expenses related to product development and other general and administrative expenses.
eBay spin-off of PayPal
I covered in the PayPal business model how the company acquired at a certain point by eBay in 2002 for $1.5 billion.
At the time, PayPal needed a strong payment processing system within its core platform.
As the years went by, PayPal’s growth went far beyond eBay, which had worked as a primary growth driver for the company in the first years of operations. Until PayPal itself became more valuable than eBay.
Indeed, by 2018 PayPal made over $15 billion in revenues and over $2 billion in net income. In October 2018, PayPal’s market cap passed $120 billion, compared to eBay’s $32 billion.
Key takeaways from eBay’s business model
- eBay, at its core, is a platform business model, or two-sided marketplace (with buyers and sellers as the two sides) measuring its growth based on the volume of successful transactions closed on its marketplaces.
- It makes money primarily through transaction fees on its core platform.
- Where business models like Amazon are still a hybrid between e-commerce and platform business, the company offers branded Amazon products, de facto, in some circumstances operating in conflict with third-party sellers.
- eBay’s strength is that the company is aligned in doing its independent sellers’ businesses.
- eBay bought PayPal for $1.5 billion back in 2002; then, it spun it off in 2015.
- In the first years of operations, eBay was the primary platform driving the growth of PayPal.
- As PayPal scaled, the company’s growth went far beyond eBay.
- eBay remains a core e-commerce platform where the value of its operations is driven by its ability to empower third-party sellers by offering a wide variety of goods and merchandise.
Read next: PayPal Business Model
- eBay’s Core Business Model: eBay operates as a platform business model, connecting buyers and sellers in a marketplace. Its revenue primarily comes from transaction fees on successfully closed sales.
- Origin Story: eBay was founded in 1995 by Pierre Omidyar and quickly grew into a platform for online person-to-person trading. It went public in 1998.
- Platform Advantage: eBay’s unique advantage lies in its commitment to being a true marketplace that supports small independent businesses, consumer sellers, and buyers. Unlike some competitors, eBay doesn’t compete against its third-party sellers.
- Value Propositions for Buyers: eBay offers expansive inventory, multiple delivery options, a Best Price Guarantee, items below $10, and authenticity checks for certain products.
- Value Propositions for Sellers: Sellers can list products through fixed-price listings or auction-style formats, list refurbished and rare items, participate in the Top-Rated Seller program, and gain insights through the Seller Hub.
- Differences from Amazon: Unlike Amazon, eBay doesn’t compete with its third-party sellers and doesn’t promote house brands. eBay’s revenue comes primarily from transaction fees, while Amazon also sells its own products.
- Revenue Sources: eBay generates revenue through transaction fees on successful sales and additional seller services. Marketing services also contribute to its revenue.
- Key Metrics: Important metrics for eBay include Gross Merchandise Volume (GMV), representing the total value of successful transactions, and the Transaction Take Rate, which indicates the percentage of revenue earned from GMV.
- Spending Priorities: eBay invests in customer support, site operations, payment processing, sales and marketing, product development, and general administrative expenses.
- PayPal Spin-off: eBay acquired PayPal in 2002 and later spun it off in 2015. PayPal’s growth exceeded eBay’s, and it became a valuable independent entity.
- eBay’s Strength: The strength of eBay’s business model lies in its ability to empower third-party sellers and offer a wide variety of products. It prioritizes the success of independent businesses on its platform.